Remarks by CEA Chair Jared Bernstein at the Anti-Monopoly Summit

As Prepared for Delivery

Thanks for inviting me to dive into an important area of our work at CEA and in the Biden-Harris administration: ensuring competition in economic markets. I’d also like to thank our CEA staff for helping me prepare for today’s gathering.

I recently gave a talk explaining the economics behind our industrial policies, wherein I acknowledged that this work is motivated by seeing market failures that past administrations often missed. I stressed that left to their own, labor markets don’t always settle into full employment, especially for more economically vulnerable populations. I suspect few here would question the assertion that the private market, with its high discount rate for the future, tends to underinvest in offsetting the existential threat of climate change. I stressed market failures in the affordable housing and child care markets, where we have powerful, corrective policies for which we’re actively fighting.

These are all consequential market failures, with potentially devastating negative externalities.

But there’s this other part of our agenda, one which warmly embraces the power of market forces, one which aims to elevate transparent price signals to boost those forces in ways that classical conservatives, from Hayek to Friedman, would applaud. One which is designed to foster and boost competition, to repeal anti-competitive measures that diminish the freedom of workers or entrepreneurs to pursue their goals and dreams, to create a level playing field on which firms can fairly compete in ways that we know will generate more innovation, fairer prices and wages.

I speak, of course, of our competition agenda, which in the context of today’s convening, we can easily and correctly think of in terms as an anti-monopoly agenda. In the next few minutes, I’ll briefly clarify how we think about competition, market power, monopoly and monopsony, and then discuss our whole-of-government approach to competition. I also want to be sure to provide some contrast with opposing forces whose goal is to block our competition agenda, thereby threatening the progress we’ve made thus far and threatening to restore and reinvigorate anti-competitive pressures. I’ll also explain how our work in this area is quite personal to President Biden.

Starting with first principles, I’m tempted to define competition as how firms, workers, suppliers, investors, and even countries compete, but that’s perhaps a touch circular. So, let’s turn to our Office of Information and Regulatory Affairs, OIRA, from whom I quote:

“Competition is…the process by which individuals or firms vie to win customers’ business for goods or services, to purchase suppliers’ goods or services, or to hire workers for their labor services. Competitive markets are characterized by…the presence of independent and rival buyers and sellers such that each market participant has many potential options to turn to…Competitive markets are associated with lower prices for consumers, higher wages for workers, more innovative products and services, more business formation, and greater resilience to unexpected events.”

When competition is diminished, OIRA points out that “certain market participants have market power” and they can and do use such power in ways that distort prices, production, quality, customer service, paychecks, innovation, and so on. Moreover, in striving for market power, firms may use up valuable resources in socially inefficient ways. The opportunity cost of firms fighting to thwart competition and elevate their market power falls broadly on the rest of society through reduced social welfare.

I suspect that all sounds pretty straightforward, but in the real world, everything is shaded by degrees. There are first mover and first innovator advantages which reward firms with some degree of market power. I still vividly remember the day about 45 years ago when a friend came over to my house with his new Sony Walkman, and gave me those unusual—back then—orange spongy earphones to put on. I’m pretty sure I bought my own Walkman that day, and I’m very sure I paid a premium for it. There’s nothing wrong with that and in fact, intellectual property law, though it too must be scrutinized for overreach—see Dean Baker’s work on patenting—is intended to provide inventors, writers, etc. with some degree of temporary market power, as an incentive to invest and create.

So where and when does market power become excessive? The question introduces widely debated measurement challenges that are deftly plumped in a 2019 overview by Prof. Nancy Rose. She goes through the strengths and weaknesses of the various metrics—concentration ratios, markups, factor income shares—concluding that there is evidence in support of increased concentration among large firms, higher markups, and lower labor share, but the evidence is nuanced and there are, as always, many determinants in play.

But there’s another criterion by which to judge excessive concentration and market power, one that is less scholarly but more intuitive. It stems from a word you’ll hear President Biden utter virtually every time he talks about economic policy. That word is fairness. You’ll hear the president talk about fair share when he’s fighting for tax policy that ensures the wealthy and rich corporations pay exactly that—their fair share—and that funds the IRS to prevent costly tax evasion by millionaires and billionaires.

You saw him just last week taking action against unfair trading practices by China, a point I’ll get back to in a moment in the competition context. In our latest meeting of the White House Competition Council, of which I’m a member, the word showed up again as the President underscored that “Fair competition is the key to my economic vision to build an economy from the middle out and the bottom up, not the top down.  And it’s working.”

Given the president’s emphasis on the importance of worker bargaining clout, the dignity of work and prominence of paychecks over portfolios, no one should be surprised that his instructions to his team are to watch not just product competition but also labor competition—not just monopolies, but monopsonies, or labor markets where employer concentration leads to a power imbalance between workers and employers.

In the simple textbook model of the labor market, any employer whose wage offer is below the market level loses all their workers to other employers. In the real world, of course, this pristine equilibrium rarely holds. There are search costs, asymmetric information, employer concentration or collusion, anti-competitive policies like non-competes, all of which jam competitive signals and provide some firms in some markets with unfair wage setting power.

Research finds that monopsony power in labor markets is pervasive. A 2022 study by Yeh, Macaluso, and Hershbein found that the average manufacturing worker earns about 65% of their marginal product. A 2022 Treasury meta-analysis of the literature suggests average wage losses due to monopsony of about 15-25%.

So, what is it we’re doing, and what do we plan to do, to rebalance competition in product, service, and labor markets? And what are our opponents’ plans, or lack thereof, in this space?

Starting with pushing back on monopsony power, the FTC announced a nationwide ban on noncompete agreements. When I first heard about this problem over a decade ago, I quickly understood how it was being abused. But what I didn’t appreciate was how prevalent these contracts were. Estimates suggest that 21% of top-quintile income earners are subject to non-competes. Fewer lower-paid workers are covered by non-competes but many still and are researchers find that there’s enough there to ding their paychecks. As you know, the ban is facing a legal challenge, but we support the bold action the FTC has taken and they have said they will aggressively defend it.

Let me next turn to junk fees, a bullseye target of President Biden in terms of cost cutting, but a cross cutting issue regarding competition. First, junk fees can stem from an abuse of market power. If consumers have inadequate choices, they’re more likely to be subjected to nuisance fees and excessive markups. As our issue brief released earlier this year found, Americans pay more than $90 billion in these fees each year and the Biden-Harris Administration’s efforts to crack down will save consumers at least $20 billion in these fees annually going forward.

But even more fundamental is the way junk fees undermine competition by promoting non-transparency in pricing. As I alluded to earlier, one area where economists from all walks of life come together is in the importance of clear price signals. As Hayek correctly argued long ago, there is no more important coordination mechanism in market-based economies. Jam the price signal and you jam the market, you jam consumer choice, and you jam the ability of competition to work its powerful force in enhancing efficiency, innovation, and fairness. As my CEA colleague Evan Gee put it, when noise is needlessly introduced into the price signal, the system stops working. That may sound like a lot to lay at the feet of those little old pesky junk fees, but Evan is right.

Next, as OIRA articulates in a recent, extensive analysis, with the mouthful-of-a-title “Guidance on accounting for competition effects when developing and analyzing regulatory actions,” good competition practices start at home. We in the government, with our millions of employees, our hundreds of billions in yearly procurements, our industrial, education, and labor policies, and of course our regulatory responsibilities, have enormous power to shape competitive practices. In the interest of time, I won’t go through the OIRA guidance other than to note that it carefully operationalizes the president’s executive order on competition in directing every executive branch agency to consider competition in their rulemakings.

Finally, as I hope you saw last week, our fair competition agenda extends beyond our borders. After a review by our Trade Representative Katherine Tai, President Biden raised tariffs on a strategic and targeted set of Chinese exports. In each case, these tariffs are intended not to dampen but to enhance competition, to level the playing field in key areas such as clean energy production where Chinese over-capacity threatens to displace nascent domestic production. Our nation has already been through one China shock, in the 2000s, after China joined the WTO, when similar tactics led to the concentrated loss of manufacturing jobs in communities that were hollowed out by unfair competition. On our watch, there will be no second China shock.

Speaking of our watch, let me close with some growing concerns about the opposition party’s competition agenda, or more precisely, lack thereof.

The prior administration clearly viewed these issues 180 degrees differently from what I’ve been espousing today, and, in fact, wrote in their 2020 Economic Report of the President that “Concentration may be driven by economies of scale and scope that can lower costs for consumers.”

Congressional Republicans have consistently opposed FTC reviews of oil, gas, and banking mergers, while standing in opposition to our noncompete ban. Many tried, but President Biden managed to provide Medicare the power to negotiate lower drug costs. With the support of Republican leaders, Big Pharma is suing to block such competition.

Republicans are actively trying to protect the junk fees our administration is going after, including CFPB’s credit card late fees and overdraft fees rule, fees that add billions to families’ expenses. We also know that prominent right-wing think tanks are preparing to implement an extensive financial deregulation agenda that is likely to lead to consolidation and increased market power in the banking and finance sectors, setting the nation’s economy up to relearn a very painful lesson about the impact on regular folks from such financial deregulation.

Other broad efforts to reverse our pro-competitive agenda include requiring congressional approval of new major regulations issued by agencies and setting sunset dates for all major regulations. Spend a few minutes going through these materials and you see a tangible hostility towards the competition enhancing agendas of DOJ, FTC, CFPB, and every other government agency that has been a key participant in the Biden-Harris Administration competition agenda.

It’s a stark contrast and it’s one that redounds to the doctrine of fairness at the heart of every single Biden/Harris economic policy. I’ve spoken today about many technical issues in understanding, measuring, and promoting competition. But there’s a way in which this is all extremely simple and extremely Biden’esque. It’s all about protecting the little guy and gal in a world where power—market power, monopsony power, concentrated power—is too often aligned against them.

It’s been my privilege to work for this president for long enough to recognize that this is what he believes is the role of government. This is absolutely foundational to him. Under this president, we will never act to enhance the power of the powerful. To the contrary, we will take every opportunity to use the policy tools at our disposal to rebalance that power on behalf of those who lack it.

Thank you for the opportunity to speak to you today and have great rest-of-the conference.